RIL's US shale foray pays off

Earnings touch Rs 559 crore, local oil & gas only Rs 487 cr

In barely four years of commencement of operations, revenue from RIL’s US sh­ale gas business has overtaken those from its domestic oil and gas operations. The company expects this trend to continue in the co­ming years due to better demand and higher margins.

RIL posted total revenue of Rs 1,617 crore from its US shale gas assets in the first quarter of the current financial year compared with Rs 1,557 crore from its Indian oil and gas business. Total earnings before interest and taxes (Ebit) from the US shale business stood at Rs 559 crore compared wi­th Rs 487 crore from local oil and gas operations. Ev­en margins from the shale business were higher at 34.6 per cent compared with margins from the Indian operations at 31.3 per cent.

RIL believes the ability of the US operations to generate higher margins and income is likely to continue as the Henry Hub price of gas has been averaging $4.5 per million metric British thermal unit (mmBtu) in the past two years. Besides, the usage of shale oil and gas has actually overtaken the use of conventional oil and gas in the generation of power and other industries in the US, which would allow the companies to continue production.

RIL’s chief financial officer Alok Agarwal said exports of condensates have also been gaining currency. “Even RIL would take up these exports from its Pioneer joint venture, which is producing 676 million metric cubic feet of oil equivalent per day (Mmcfe/day), including around 64,500 barrels per day of condensate.”

Reliance’s share from its three joint ventures in the US stood at 41.4 billion cubic feet equivalent (BCFe), up 28 per cent year-on-year and 10 per cent sequentially. The sequential growth in revenue and profits were impacted by higher basis differentials for natural gas and condensate. This was partially offset by lower operating costs, Agarwal said.

The gross joint venture production is now averaging above 1billion cubic feet equivalent per day (Bcfe/day) and RIL’s share of production was 48.6 Bcfe in first quarter of the fiscal year.

According to statistics available with RIL, some 210 wells were drilled in the first quarter, while 610 wells were in production, at present. Production at Chevron Marcellus JV stayed strong at 312 Mmcfe/d, while improvement in midstream situation and market conditions enabled production at Carrizo to reach new levels of 176 Mmcfe/d during the quarter.

Overall, capital expenditure for the quarter was at $331 million and cumulative investment across all JVs stands at $7.36 billion. A substantial part of Pioneer and Carrizo JV capex were met through cash from the respective operations. Capex in the Chevron JV continues to account for the substantial part of funding needs.

Back home in India, the KG-D6 field produced 530,000 barrels of crude oil and 90,000 barrels of condensate in the first quarter of the fiscal 2014-15, which was a reduction of 1 per cent in crude oil and a growth of 48 per cent for condensate on a y-o-y basis. Gas production from the block was at 42 billion cubic feet in the first quarter of FY15, a decline of 15 per cent yo-y. Fall in production resulted mainly from shut down of wells in the D1-D3 field, which was partly offset by incremental production from new wells drilled as part of enhanced gas recovery (EGR) activities during the second half of last year.

Total revenue from RILs oil and gas business, including domestic and international operations also moved up in the first quarter by 28.3 per cent to 3,108 crore while the earnings before interest and taxes rose 114 per cent to Rs 1,042 crore. The overall margin was also up at 32.8 per cent compared with the earlier 28 per cent and 24 per cent in sequential quarter and same quarter last year, respectively.

“RIL’s domestic oil and gas business will catch up in the coming years with other segments as some of the major fields and wells start producing from satellite and other R-series and M-series fields. Also, once gas prices are revised upwards, its total revenues would go correspondingly,” said AK Prabhakar, independent market expert on RIL.